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The Art of Saying “No”: Part 3

As I said before, early on in my VC career I struggled with exactly how to say “no”.  I’d like to think that in most cases I simply said “no”, but I can think of a few cases where I wimped out for one reason or another and made up an excuse to shift the blame.   Ultimately I decided that not saying “no” when you really meant it was unprofessional and a huge disservice to entrepreneurs and so I decided to start not only saying “no”, but in most cases actually specifying exactly why I was saying “no”.

Giving a specific “no” is easy in some cases, such as deals that fell outside of my current investment focus, however it’s obviously harder for deals that clearly feel within my bailiwick.   In those cases, I now typically try to provide the entrepreneur with a short list of reasons why I am saying no.  While those reasons may legitimately include something like “I am too busy right now” they will also typically include concerns about the business’s target market, product (or lack therefore), business model, team, etc.

While I strongly believe that such frankness is not only the right thing to do and is far more valuable to an entrepreneur than a simple “no”, it is admittedly a high-risk strategy.  Generally speaking I get one of four main reactions to this kind of “no”:

1.    You are wrong, let me help you understand why.  To be successful, entrepreneurs must generally be passionate, persistent, and persuasive. Tell them that you won’t invest in their company because of a specific reason and they will naturally try to convince you that you are wrong about that reason.  Most entrepreneurs I say “no” to at least makes a token attempt at trying to change my mind.  I am fine with this because I realize that in many cases I am wrong as there’s no way I know a good entrepreneur’s business or market the way they do, so it’s good to have someone challenge my reasons for saying “no” as I may indeed change my mind.  That said, the problem with engaging in this discussion is that it can be very time consuming and you can end up wasting both people’s time if you are saying “no” because of some hard learned investment “rule” that you hold dear.

2.    OK, goodbye.  Many hardened entrepreneurs have heard the word “no” quite a lot: from VCs, from sales prospects, from recruits, from you name it.  For them, as long as it’s quick, a “no” is in some ways a good as a “yes”.   They don’t really care about your reasons for saying “no” because they either have a poor impression of VCs to begin with, they just don’t care what other people think or for them a “no” is par for the course and they’d rather just move on to the next potential pot of money.

3.    You are an asshole.  Not surprisingly some people have a pretty bad reaction to a specific “no”.  At one level it’s totally understandable giving all of the passion, time, and money they’ve invested in their business, but at another level any entrepreneur who has this kind of reaction probably isn’t someone you want to fund because you can be guaranteed that they are going to hear “no” a lot more as they try to grow their business.

4.    Thanks, this has been helpful.  Let’s talk if we raise another round.   If properly done, my experience is that the majority of entrepreneurs will react this way to a “no”.  For starters, entrepreneurs are generally good salespeople and they realize that if one customer has an objection, similar customers are likely to have the same objection.  Thus the more feedback they can get on their funding pitch, even if it’s negative, the better off they are.  In addition, if the entrepreneur feels that the feedback they get is thoughtful they usually appreciate that someone took the time to seriously think about their business.  Finally, most entrepreneurs, like VCs, never want to preclude the possibility of a future investment so they do what they can to leave the door open in the future.

If I had to sum it all up, for me I believe that the art of saying “no” in Venture Capital really boils down to three principals:

1.    Being honest.  It’s tempting to use a convenient excuse, but you and the entrepreneur are both better off if you are upfront and honest.  Yeah, you risk alienating some entrepreneurs but if they don’t respect you’re attempt to be honest then they you probably wouldn’t have worked well together anyway.
2.    Being specific.  To the extent that you can be specific, you owe entrepreneurs the real reasons for why you are saying “no”.  Not only is this the right, professional thing to do, but it will also help force you to make sure you are making the right decision.
3.    Being quick.  A fast “no” is much better than a long draw out “no”, both for the entrepreneur and for you.

Following these principals is harder than it might seem (especially #3), but I believe that if you do, everyone is the better off for it.

March 29, 2005 in Venture Capital | Permalink


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The thoughts and opinions on this blog are mine and mine alone and not affiliated in any way with Inductive Capital LP, San Andreas Capital LLC, or any other company I am involved with. Nothing written in this blog should be considered investment, tax, legal,financial or any other kind of advice. These writings, misinformed as they may be, are just my personal opinions.